SBC

May 1, 2016

Myanmar's government has published its first
ever Public Expenditure Review, which details recent ramp-ups in health and
education spending and outlines a range of challenges to improving public
spending.

The
Ministry of Planning and Finance and World Bank Group presented the report,
which analyses spending policies between 2009 and 2013, in Nay Pyi Taw
yesterday.

It shows
large changes in the Union budget’s composition in recent years. Between 2009
and 2015, general public services spending fell from 45 percent of the budget
to 11pc, social services rose from 10pc to 33pc, and defence from 21pc to 33pc,
the report said. Military spending still remains high and limits the “expansion
of other public services”, according to the analysis.

Data from
the Ministry of Defence indicates that military spending of 4.2pc of GDP was
planned for 2013-14, which is well above the 2.3pc average for countries at the
bottom of the middle-income range, the report said.

Defence
also consumed the largest portion of government spending on goods and services
between 2010-11 and 2013-14 and its consumption also grew faster than other
sectors – although the report notes large gains were also made in health and
education.

Government
revenue between 2009 and 2014, meanwhile, rose from 6pc of GDP to 11pc – thanks
to one-off measures like telecom licence sales and exchange rate devaluation,
and a wider tax base. General government expenditure nearly doubled over the
same period to 13pc of GDP, the report said.

The
period under examination also covers a fundamental shift in government budget
policy starting in 2011, as part of an effort to improve essential public
services, according to the report, which focused on education and health
spending.

U Kyaw
Win, minister for planning and finance, told media yesterday that the new
government will focus on improving education, health and social infrastructure.
“We will try to meet people’s social and economic needs in order to reduce poverty
in the country as much as possible,” he said.

Habib
Rab, senior country economist for the World Bank in Myanmar said the review,
which was finalised in September last year, had already informed budget
policies including on health and education, as the World Bank shared chapters
of it with the government even before June 2015.

The
country has historically spent less on education as a share of GDP than its
regional peers. Education spending fell to 0.7pc of GDP in the 2011-12 fiscal
year, the report said. Although this rose from 1.6pc in 2012-13 to 2.1pc in
2013-14, the ASEAN ex-Myanmar average is 3.6pc.

Weak
education spending has led to poor outcomes – only 460,000 out of 1.2 million
students starting in grade 1 eventually make it to grade 11, and over one
quarter of children at the end of grade 1 cannot read a single word, the report
said.

Another
result of low spending is that an unusually high share of total education
financing in Myanmar has come from households – around 63pc, according to a
one-off Integrated Household Living Conditions Survey carried out in 2009-10 by
the United Nations Development Programme.

But
public spending on education is rising fast, and quadrupled – from a low base –
between 2011-12 and 2013-14, according to the report. As a result, starting in
2012-13 the Union government “has likely replaced” private households as the
source of financing for education, although updated information on household
spending will only become available as part of household survey data collected
in 2015.

Measures
to ease the burden on households included abolishing primary school fees in
2013-14 and secondary school fees in 2014-15. The government also started to
provide free textbooks in 2014-15, and began improved stipend programs for the
poor and disadvantaged in 2015-16, the report said.

Meanwhile,
the increase in government spending has helped hire 79,000 more teachers, and
the Union government has delegated some spending authority to district and
township education officers and school heads through block grants.

But new
initiatives will require more spending. Myanmar’s basic education system
consists of only 11 years of schooling compared with 12 or 13 in the rest of
ASEAN, the report said. Adding an extra year of pre-school would cost an extra
K91 billion a year – a 12pc increase in the education budget – to hire the
necessary teachers and build new kindergartens. Keeping 322,000 students in
high schools for one more year would cost K58 billion a year, according to the
review.

The
volume of required spending is likely to be even higher if the government
focuses on higher-quality education, which in turn is unlikely to be achieved
without retraining teachers and equipping them with better textbooks and
teacher guides, the report said. The Ministry of Education will have to grapple
with delivering more despite a limited administrative budget, limited data to
inform spending priorities and fledgling capacity to analyse the links between
policy and budget priorities, the review concluded.

The
report tells a similar story for health spending, which was only $1.6 per
person in 2012, when out-of-pocket expenses accounted for almost 80pc of total
health spending. This has resulted in some of the lowest health outcomes among
ASEAN countries, but as with education, government spending has risen sharply.

Government
spending in the health sector increased nine-fold in the five years between
2009-10 and 2013-14, the review said. Ministry of Health spending on programs
with “public good” characteristics like nutrition, water and sanitation have
risen.

Beginning
in 2012-13, essential drugs and selected healthcare services were provided free
of charge to children, pregnant mothers and patients needing emergency surgery
under “certain circumstances in some facilities”.

The early
signs are that these steps are reducing prohibitive out-of-pocket payments by
households, said the review. The share of out-of-pocket payments fell from 82pc
to an estimated 60pc over the same period as the nine-fold rise in government
spending, the report said.

But a
lack of data still makes policy making and monitoring difficult, and
inefficient spending remains an issue, the review said. Even with the sharp
increase in spending, the country is failing to meet health targets.

The fact
that Myanmar is unlikely to hit Millennium Development Goals on child and
maternal mortality suggests that it “may want to consider increasing
significantly public funding of programs aimed at improving maternal and child
health”, the report said.

U Maung
Maung Win, permanent secretary at the planning and finance ministry, said the
report will support the government’s efforts to distribute the budget for the
benefit of the people.

“It will
help us to make systematic reforms where necessary and to budget efficiently,”
he told media at the report’s launch yesterday.

Mr Rab
said Myanmar would not produce a public expenditure review every year, but that
the Bank was due to start on a second review in July.

“We hope
it [the inaugural review] triggers more regular analysis of spending policies,”
he said, adding that the World Bank is encouraging the Ministry of Finance to
make public a database of fiscal spending that it built specially for the
review.

“You see
a huge shift in the culture of budgeting and public finance management,” said
Mr Rab.

“The budget
changed from being an administrative tool to an instrument to prioritise and
implement development policy.”

Apr 22, 2016

TEL AVIV
- Singapore is taking action under the
Transboundary Haze Pollution Act to go after companies that started fires or
let their concessions burn, and contributed to last year's haze, Environment
and Water Resources Minister Masagos Zulkifli has said.

It has
issued notices to six of these Indonesia-based companies, asking them to
explain what steps they are taking to put out and prevent fires on their land.

Two of
them have replied. A director of one of the four firms that have yet to respond
has also been served with a notice to provide information on what his company
is doing to mitigate fires on its land and prevent a repeat.

"He
has left, but he is required to return," Mr Masagos told reporters.

"Should
he not return, he would have violated our laws and therefore, among others, we
can arrest him upon entry later than the notice on which he is supposed to
return," he added.

Mr
Masagos declined to reveal the name of the director or his company, but said he
can also be detained in Singapore if he does not give the information required.

"We
must not let companies, corporations get away with their most egregious
acts," he said.

Mr
Masagos made these points when asked by Singapore reporters about comments by
his Indonesian counterpart questioning what Singapore had done to combat forest
fires.

Indonesia's
Environment and Forestry Minister Siti Nurbaya Bakar had told environmental
news site Foresthints.news last week that her country had been attempting to
prevent the recurrence of land and forest fires, and consistently enforcing the
law.

"My
question is - what has the Singaporean Government done? I feel that they should
focus on their own role," she was cited saying.

Mr
Masagos noted that Singapore has a good relationship with Indonesia on many
fronts because both countries are working together.

But he
said the haze was a complex issue that had to be tackled not just bilaterally,
but also at the Asean and regional level.

For
instance, Singapore led an Asean peatland management programme to raise
awareness of what people can do to manage and restore peatland, on which most
forest fires take place.

The
National Environment Agency had served notice to Asia Pulp and Paper last year,
asking for information on steps its subsidiaries and Indonesian suppliers are
taking to put out fires in their concessions.

"We
are now looking at them to see how we are going to move forward," Mr
Masagos said.

But he
would not be drawn into commenting on what actions could be taken against the
companies, saying investigations are still ongoing.

"The
message to everybody is: whether you are Singaporean, whether you are a
foreigner, if you violate our laws, we will take the law to its full
extent."

Laos's National Assembly on Wednesday appointed
Communist Party chief Bounnhang Vorachit as the country's new president and
named foreign minister Thongloun Sisoulith as prime minister.

The picks
are seen by many analysts as a continuation of the status quo in secretive
Laos, where the communists have ruled since the end of the Vietnam War.

State
television broadcast a meeting of the single-chamber National Assembly, at
which lawmakers listed the virtues of Bounnhang, who was appointed Communist
Party leader in January.

"The
National Assembly has approved Bounnhang Vorachit as president, with more than
two-thirds of the votes," said assembly chairwoman Pany Yathotou.

The
149-member assembly completed the process of nomination and voting for both
candidates in around an hour.

In his
acceptance speech, Bounnhang said he would strive for "peaceful
international policies, unity, friendship and cooperation".

One of
the fastest-growing economies in East Asia, landlocked Laos has averaged GDP
growth of 7 percent over the past decade, with increasing use of natural
resources contributing a third of output growth, the World Bank says.

This has
boosted incomes and access to electricity, telecoms and healthcare for its
mostly rural population of 6.7 million.

Laos has
close political ties to communist Vietnam and mirrors its political system.

Communist
neighbor China has been vying aggressively for influence in Laos, however,
providing loans, aid and infrastructure investment.

Laos is
still struggling to rid itself of the painful legacy of the Vietnam War, when
it became the most heavily bombed country in history after the U.S. and its
allies dropped about two million tons of ordnance from 1964 to 1973.

More than
four decades on, the country grapples with millions of cluster munitions and
other unexploded ordnance devices that kill and maim dozens each year.

Apr 19, 2016

Jakarta. When Cambodia's Prime Minister Hun Sen
carried out a sweeping reshuffle of his cabinet recently, he actually sent out
two messages, one to his countrymen, the other to the world.

Look, he
was telling his countrymen, I'm going after corruption in the bureaucracy with
a hammer and tongs. For this I'm axing the ministers of agriculture, land
management, rural affairs, transport, commerce, religion and foreign affairs.

Significantly
the ministries of education and environment, led by reputed reformists, were
untouched. Education Minister Hang Chuon Naron has cracked down on sleazy
practices in schools, such as cheating in exams and the jacking up of grades.
He has raised teachers' salaries so they have less reason for bilking pupils.
Reform has a long way to go in the education sector but Naron has made a robust
beginning.

For his
part, Environment Minister Say Samal has done the unthinkable: the transfer of
a large part of his ministry's powers to another ministry. Prime Minister Hun
Sen has acceded to his proposal to shift control of the country's economic land
concessions from the Ministry of Environment to the Ministry of Agriculture.
Samal's ministry can now focus exclusively on conservation and the protection
of what is left of Cambodia's forests.

Meanwhile
a notable reformist, Chea Sophara, has taken over the corruption-riddled land
management ministry. Cambodia today is in a maelstrom of disputes over land
titles involving not only farmers but also members of rich families fighting
over inheritances. Chea Sophara will have his hands full tidying up the mess.

The spur
for reform is obvious: the government painfully needs to recover political
ground lost to the opposition Cambodia National Rescue Party (CNRP). In the
2013 elections Hun Sen's Cambodian People's Party squeaked through to victory
by the skin of its teeth. That was a rude awakening: the people were at the end
of their patience with rife and rampant corruption and a widening gap between
rich and poor.

Hun Sen
must have also felt the people's displeasure with a foreign policy that was too
China-oriented, to the detriment of Cambodia's ties with such powers as the
United States, Japan and the European Union as well as with Association of
Southeast Asian Nations (Asean) neighbors.

That's
why Hor Namhong, the country's long-serving foreign minister had to go. It was
he who infamously refused to issue a chairman's statement at the Asean
Ministerial Meeting in Phnom Penh in July 2012 — all because Vietnam and the
Philippines had insisted that the statement should reflect their concerns in
the South China Sea.

Soon
after that debacle I wrote a column comparing that meeting to a situation where
ten foreign ministers sat in a room with two elephants. Nine of the 10 wanted
to comment on the pachyderms but one, the chairman, wouldn't even glance at
them.

One
elephant in the room was the discussion of the foreign ministers on the
standoff over the Scarborough Shoal — which the Philippines wanted reflected in
the paragraph on the South China Sea. Weeks earlier there had been a standoff
between Chinese and Philippine ships near that shoal, which both countries
claim. It's not the standoff that the Philippines wanted mentioned, but the
discussion.

The other
elephant in the room was a reference to exclusive economic zones and
continental shelves, proposed by Vietnam. Earlier, Vietnam had a spat with
China over an area claimed by Vietnam by virtue of the Law of the Sea (Unclos)
and by China by virtue of its nine-dash line.

The
then-Indonesian foreign minister, Marty Natalegawa, supported by his
Singaporean and Malaysian counterparts, tried heroically to cobble a paragraph
that would be acceptable to all, but finally Hor Namhong decided to issue no
statement at all. He argued that these issues, being bilateral, had no place in
an Asean statement — never mind the long-established consensus that bilateral
issues with regional repercussions, like the border dispute between Thailand
and Cambodia itself, could be addressed at the regional level.

According
to historian Donald E. Weatherbee, Chinese diplomats advised Hor Namhong behind
the scenes. All observers deemed the washout a diplomatic coup by China at the
expense of Asean. Prime Minister Hun Sen stoically shared the blame with his
foreign minister.

Valiantly,
then-foreign minister Marty Natalegawa launched a 36-hour shuttle and phone
diplomacy that produced a joint statement on six basic principles —
non-controversial and already long agreed upon — advocating peace in the South
China Sea. But the harm had been done. Asean solidarity suffered a huge dent
that neither Asean, nor Cambodia has been able to live down.

With the
recent departure of Hor Namhong, however, and with the ascendancy of Prak
Sodhon as foreign minister, a new era of a more enlightened diplomacy should
dawn on Cambodia.

Prak
Sodhon's foreign policy views are well known: under his guidance the country is
expected to revert to a strong non-aligned stance. These early, Cambodian
diplomats have borrowed former Indonesian foreign minister Marty Natalegawa's
pet concept, "dynamic equilibrium," to depict the country's new
foreign policy. This means that Cambodian diplomacy will "rebalance"
so that it strengthens relations with the United States, Japan and the European
Union, while maintaining a stable partnership with China. Since Cambodia isn't
a South China Sea claimant, it will probably adopt Indonesia's neutralist,
pro-Asean inclination.

Everything
about that cabinet reshuffle augurs well for both Cambodia and Asean. Let's
hope that Cambodia will sustain the spirit of reform and political pragmatism
that triggered the shakeout. And that the "rebalancing" of its
foreign policy will endure.

Jamil
Maidan Flores

Jamil Maidan Flores is a Jakarta-based literary
writer whose interests include philosophy and foreign policy. The views
expressed here are his own. He may be contacted at jamilmaidanflores@gmail.com.

A
military regime delaying elections, haircuts for foreign investors using local
courts and a prime minister fighting a financial scandal are among risks funds
are looking past as they pile into Southeast Asian debt.

Foreigners
have pumped $12 billion into Thai, Indonesian and Malaysian notes this year,
more than twice as much as in 2015.

Thailand,
where Prime Minister Prayuth Chan-Ocha hasn’t set a date for a vote two years
after taking power in a coup, has lured the most inflows. Indonesia has reaped
rewards from easing inflation, despite losses for foreign investors in two
high-profile defaults. In Malaysia, a rebound in oil has offset concern over
global probes into an investment company whose chief adviser is Prime Minister
Najib Razak.

“Investors
are taking the view that unless an event will completely derail a country’s
reform process and undermine the economic growth outlook, it is not justified
to reverse a long-term investment decision,” said Anders Faergemann, a
London-based senior portfolio manager at PineBridge Investments, which oversees
more than $84 billion. “This shows a new sophistication and understanding of
domestic issues by foreign investors.”

Southeast
Asia has benefited from the Federal Reserve’s go-slow approach to raising
interest rates, a stabilization of China’s economy and a recovery in commodity
prices. The International Monetary Fund last week maintained its growth
forecasts for the big five Asean economies, while cutting global projections.
The Asian Development Bank says the region’s expansion prospects and
600-million plus population make it the next “growth play.”

Thailand, Indonesia

Thai
Prime Minister Prayuth had targeted holding an election in late 2015 but pushed
that back to mid-2017. Thailand will hold a referendum on a new constitution in
August after the junta rejected a draft charter in September. Many investors
viewed the military coup as necessary to restore stability after a “precarious
political situation,” said Faergemann.

Foreign
funds have pumped a net $4.7 billion into Indonesian government securities in
2016, Finance Ministry figures show, as inflation below 5 percent allowed three
interest-rate cuts in 2016. While flow data for company notes aren’t available,
a JPMorgan Chase & Co. index of dollar-denominated corporate paper show the
average yield has fallen 38 basis points this year to 5.5 percent.

Some
bondholders of PT Trikomsel Oke said they were disappointed with an Indonesia
court decision that rejected their claims after the phone retailer’s 2015
default. This month, a Jakarta judge excluded Standard Chartered Plc from a
creditor list and raised questions about the validity of its claims to recoup a
$1 billion loan made to coal miner PT Borneo Lumbung Energi & Metal,
according to a Reuters report.

IMDB, Najib

Overseas
investors bought a net $2.3 billion of Malaysian government and corporate notes
in the first three months of this year, official data show. While local
authorities cleared Prime Minister Najib this year over what they said was a
$681 million donation from the Saudi Arabian royal family, regulators from
Switzerland to Singapore are investigating allegations state-owned investment
company 1Malaysia Development Bhd. was used to funnel money to individuals
including the premier. Najib and IMDB have denied any wrongdoing.

1MDB’s
dollar bond prices slumped on Monday to the lowest since November after an Abu
Dhabi sovereign wealth fund said the company and the Malaysian finance ministry
have defaulted on terms of a binding agreement including a payment of more than
$1 billion. The notes traded at 83 cents on the dollar on Tuesday to yield 7.62
percent, compared with less than 6 percent last week, according to
Bloomberg-compiled prices.

The
dispute with the Abu Dhabi fund puts the progress of the state investment
company’s debt restructuring efforts in doubt, Christian de Guzman, a
Singapore-based senior analyst at Moody’s Investors Service, said on Tuesday in
response to questions from Bloomberg.

1MDB sees
an “amicable resolution” to the dispute, President Arul Kanda said Tuesday in
an interview with Bloomberg Television. The Malaysian fund is in a ‘‘very
stable position,” he said.

Around a
fifth of Malaysian government revenue comes from sources related to oil, which
has rebounded from a 12-year low. Demand has also been bolstered by 1MDB
selling assets.

Supportive Environment

“The risk
premia has reduced in 2016 as 1MDB monetized assets and risk sentiment turned
for the better supported by a stabilization in the oil price,” said Jens
Nystedt, a New York-based managing director at Morgan Stanley Investment
Management, which oversees $406 billion.

Regional
political considerations for Southeast Asian bonds have been factored in and
the global environment is supportive, said Valentina Chen, a Zurich-based
senior portfolio manager at Vontobel Asset Management, which oversaw $95.7
billion as of December 2015.

“As long
as the Fed stays dovish and we don’t see any deterioration in emerging-market
Asia fundamentals, we expect the inflows to continue,” she said.